The patent has a 12-year life remaining. The drug requires $150 million initial costs for commercial production. Based on market research, the current assessment is that the net cash flows of the drug would be $24 million per year until the patent expires. The cost of capital for the Future Pharma Inc. is 7%. The standard deviation on the assets of pharmaceutical companies is 32%. The Treasury bond yield is 5%.

a. (1 point) What is the value of the patent if it is immediately commercialized? 

b. (2 point) Provide the following inputs for the Black-Scholes model AND use the model to determine the value of Future Pharma's patent as an option to delay.

• Current value of the underlying asset S =
• Strike price K =
• Standard deviation of the asset value Sigma =
• Life of the option t =
• Risk-free rate r =
• Cost of delay y =